📊 Investment ROI Calculator

Understanding Return on Investment (ROI)

Return on Investment (ROI) is a key performance metric used to evaluate the efficiency and profitability of an investment. It helps compare the returns of different investments relative to their costs.

How ROI is Calculated:

The standard formula for ROI is:

ROI = (Net Profit / Cost of Investment) x 100%

• Net Profit: This is calculated as the Final Value (or current value if not yet sold) of the investment minus the Total Cost of Investment.
  • Net Profit = Final Value - Total Cost of Investment
• Cost of Investment (or Total Investment): This is the sum of the initial purchase price and any associated costs like buying fees, commissions, or improvement expenses.
  • Total Cost of Investment = Initial Investment + Buy Fees + Sell Fees (if applicable for net profit calculation)
  This calculator considers Buy Fees and Sell Fees separately to determine the Net Profit.

Practical Example:

Suppose you bought shares for $1,000 (Initial Investment), paid a $10 buy fee. Later, you sold the shares for $1,200 and paid a $10 sell fee.

Total Cost of Investment = $1,000 (initial) + $10 (buy fee) = $1,010 (for ROI calculation basis)

Net Proceeds from Sale = $1,200 (sell price) - $10 (sell fee) = $1,190

Net Profit = $1,190 (net proceeds) - $1,010 (total cost including buy fee) = $180

ROI = ($180 / $1,010) × 100% ≈ 17.82%

Interpreting the Result:

• A positive ROI indicates that the investment generated a profit. The higher the percentage, the better the return relative to the cost.
• A negative ROI indicates that the investment resulted in a loss.
• Comparing the ROI of different investments can help you decide where to allocate your resources, although other factors like risk and time horizon should also be considered.

Limitations of ROI:

• Time Period: Standard ROI doesn't account for how long the investment was held. An ROI of 10% over one year is much better than 10% over five years. For comparisons over different periods, consider using Annualized ROI (not included in this basic calculator).
• Risk: ROI doesn't measure the risk associated with an investment. Higher ROI often comes with higher risk.
• Other Factors: It doesn't account for taxes or the time value of money (inflation).

While simple, ROI is a powerful tool for quickly assessing investment performance.